Tuesday, March 24, 2009

20/20: From Hedge Funds to Pizza Delivery

What shall be interesting if the Federal Reserve is indeed successful at papering over the world with US dollars is the divergence between the inflated real (Main Street) economy and the inflated asset valuation (i.e. stock market/commodities) market. But I guess we are back to trickle down economics - that which is good for the upper 0.5% surely will create boon times for those below. Here is a person who has moved down from the upper echelon to the bottom rung very quickly; granted it's an extreme example due to where he came "from" - but I'd argue there are many cases of this out there; only most people don't start at $750,000 before they become underemployed. Many started at $80K, $60K, or $40K. What it does showcase is the reaching out for "what the Joneses have", living above ones means, never saving for a rainy day, and using the house ATM for life's expenses ... (I am trying to figure out how he avoided paying a mortgage for 2 years)

I will leave the rest of my editorial comments out but it reflects a sample of what is happening in the "real world" which even in latter 2007 as the stock market raced to all time highs, we stated the "investing world" was simply ignoring. You can find 532 such editorial comments here, if you wish. Now going back to the first point of this story *if* the Fed is "successful", you will see the most regressive tax there is (inflation) once more attack those on the lower runs of society on Main Street - but ironically said papering of the world with US Pesos could push the stock market up far higher than it should be, creating another illusion of "prosperity". And we'll be told this is great because "we're all stock investors" (except the bottom 40% who have zilch in the market, and then the next 20% would have a cursory $3-$5K somewhere) It will be fun to watch $4 gas with a 11% unemployment rate - and people scratching their head why this is happening. Again, that's the "best case" if Uncle Ben gets his way. (7 minute video)

For the first 45 years of Ken Karpman's life, everything was close to perfect. He graduated from UCLA with a bachelor's degree and M.B.A., then got a high-paying job as an institutional equity sales trader. He married his dream girl, had two children and traveled the world on expensive vacations.

Over the span of Karpman's impressive 20-year career as a trader, he climbed the company ladder, reaching a salary of $750,000 a year. "Life was good, we were making a lot of money -- and why wouldn't this just continue on?" Karpman said.

From all appearances, Ken and Stephanie Karpman were living the American dream in Tampa, Fla., nestled in their 4,000-square-foot home that sits on a golf course. "I had no idea what anything cost in a store," he said. "I'd just put it in the cart and buy."

Karpman was so confident in his good fortune and the strong economy that he left his job in 2005 to start his own hedge fund. To pay for the new business and their standard of living, Karpman quickly burned through $500,000 in savings and, like so many Americans, took a line of credit against his house.

But in the reversal of fortune that followed, Karpman was unable to attract investors and was forced to dissolve his hedge fund. He found himself jobless in a job market that had collapsed. After a lengthy and fruitless job search, the Karpmans were shocked to find themselves in financial dire straits, with zero savings, hundreds of thousands of dollars in debt and their home in foreclosure.

Karpman's salary plummeted from six figures to $7.29 an hour -- plus tips -- but it's money that he's grateful to earn, even when it means delivering to neighbors or his old office building. The Karpmans are now on food stamps and a tight budget that doesn't nearly cover their children's $30,000 private school tuition. But thanks to an anonymous donor, the Karpmans children's tuition has been covered through next year and they are deeply appreciative

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